January 31, 2017

Pegler’s market report – 31.01.17: Dow Jones closes above 20,000 as Trump rally resumes

As published in the Brighton Argus (31.01.17) Business on page 21 under the title Pegler’s Market Report:

Dow Jones closes above 20,000 as Trump rally resumes

US equities and treasury yields have continued to rise in the past week, fuelled by US President Donald Trump’s signals of new public spending. The much-watched Dow Jones Index closed above the psychological 20,000 level for the first time. The effect on the dollar over the fortnight has been mixed. Investors have had some concerns about parts of Trump’s policy mix such as his leanings toward a protectionist trade policy.

The UK remains one of the fastest growing economy in the western world after growing 0.6pc in the final quarter of 2016. Despite the economy’s recent resilience, many commentators believe growth will slow in 2017 as higher inflation takes some of the steam out of household spending.

Data from the Council of Mortgage Lenders has shown that mortgage lending hit a nine-year high in 2016. The past year was rocky in parts as tax changes and the EU referendum pushed transaction levels up and down, however, homebuyers ended up borrowing £246bn. during the year. That is a rise of 12pc compared with 2015.

In company news, Ashtead, the equipment hire company, reached new highs as US competitors released better than expected results, fuelled by Trump’s proposed $1 trillion infrastructure spending package.

Sales of Costa Coffee’s flat whites and lattes have helped perk up trading at Whitbread as a hotel sector slowdown continues to drag on its Premier Inn and restaurant chains. The high-street coffee giant shrugged off rising competition from independent rivals to report better than expected sales in the 13 weeks to December and a strong start to the Christmas period.

Unilever’s chief executive has defended the company’s decision to increase prices on its UK products, such as Marmite, Domestos bleach and Persil as he warned of a slow start to 2017 amid extreme market volatility and continued currency volatility.

Weakness in sterling was not a problem for drink giant, Diageo, which owns the Smirnoff and Captain Morgan brands, which saw profits before tax leap by 16pc to £2.1bn for the six months to December, up from £1.8bn in the same period of 2015.

Royal Bank of Scotland is to set aside over £3bn. to deal with allegations from US authorities that it mis-sold toxic mortgage-backed securities in the run-up to the financial crisis. The UK lender, which is still 72pc owned by the taxpayer, announced that it has taken a provision to settle claims made by the Department of Justice, a move that will push it to a huge loss.

Elsewhere, BT is at risk of having its credit rating cut over fears that the heavy blow to profits from its accounting scandal in Italy and a slump in some big contracts will slow effort to reduce its debt pile.

By David Pegler, Brighton Capital Management